Prenda, the Law Firm Pretenda — and Lessons for the Future of Law

Alas poor Prenda – it coulda been a contenda in the future of law. Instead, Prenda now faces its likely demise inside a California federal district court room for questionable tactics in connection with hundreds of copyright lawsuits.

Once upon a time, Prenda Law — one of the largest copyright trolling operations — had all of the hallmarks that futurists revere. Take technology, for example. According to this 2010 Chicago Tribune piece, Prenda (formerly known as the Media Copyright Group) shelled out $250,000 to develop a piece of software that tracked illegal file sharing and captured users’ IP addresses which were then popped right into a federal lawsuit. As for the possibility of suing the wrong people or the need for human oversight before filing a suit, no worries — the lawyers behind Prenda were believed that their technology was infallible. Or so they claimed.

Like a true firm of the future, Prenda didn’t use a pedestrian model like a law partnership or professional corporation to run its operations. Likewise, Prenda used a trade name as its moniker rather than the names of the principals (SteeleHansmeier?). But whatever. The fiduciary duty and accountability that these relics of practice would have conveyed are just so 20th century. Instead, John Steele – one of the lawyers originally behind Prenda (maybe ) structured his operations as an amorphousalternative business structure comprised of a network of of counsel and free agent lawyers. No miserable associates here, just desperate young lawyers left holding the bag.
Because of Prenda’s shape-shifting structure, Judge Wright, the federal district court judge investigating Prenda’s actions, may not even have the jurisdiction to haul John Steele and his (former) Paul Hansmeier into court for for sanctions. If Prenda were a real law firm rather than a “pretenda,” it seems to me that the court would readily have jurisdiction over all of its members and employees. But because Prenda is (or at least claims to be) merely a network of loosely affiliated attorneys, the judge may only have jurisdiction over those lawyers who entered an appearance in the case.

Problems with Prenda aside, I strongly believe that law firm networks and alternative business models hold lots of promise for replacing the antiquated law firm and helping solos and smalls in particular make the most of their limited resources. Nevertheless, transparency is always paramount. Fairweather firms – lawyers that hold themselves out as law firms to take advantage of the benefits (such as conveying an impression of being larger than they actually are individually) shouldn’t be able to dump the law firm designation to evade liability or take advantage of relaxed advertising and conflicts rules.

Moreover, as more lawyers experiment with alternative business models, not only must we ensure make that clients can distinguish between a law firm, a network and a non-legal entity but also, that our courts have the tools to sanction unlawful and fraudulent conduct. Until we can come up with a method to address these serious concerns, I’m terrified at the thought of introducing non-lawyer investment into the mix. (While it’s true that Prenda happened without any outside investment, think of how much worse the damage might have been if Prenda had been funded by investors lured by its software investment and the $15 million it generated in extorted settlement payments).

That thought is not terrifying at all; investors make bad investments routinely because they (love to) take risks.

myshingle

What is terrifying is that investors might put money into an operation like a Prenda or a Foreclosure Mill that would have tragic repercussions for the victims. I don’t have a problem with outside investment if it would help make legal services affordable – but what I do object to is investment in schemes like this

shg

But we’re still struggling with the same dilemma. How can we simultaneously promote alternative business models without the mechanisms in place to deal with the harm they cause?

This problem always devolves to the same basic philosophical issue: Who is this all about, the lawyers or the clients? If the legal profession exists for the benefit of the lawyerfs, then we can try anything we please to make a living and see if it floats and what harm it does to others. But if we exist to serve clients, then their interests come first and we don’t get to try whatever works for us at their expense.
Every new concept needs to able to overcome scrutiny by asking “how can this harm clients?” Rose colored glasses and assumptions that no lawyer will ever behave selfishly or unethically isn’t good enough. We do not have a right to engage in alternatives that work for us but put clients at risk or in an untenable position. Or if that’s not the bottom line, then we have irreconciliable visions of the future of this profession.

myshingle

One reason that I have not written off the idea of outside investment entirely is because it has been supported by legal aid groups and others whom I respect (Granat, Kimbro) who believe that it could expand access to law. I’m not sold, but if outside investment (coupled with sufficient oversight/monitoring, however that would look) would help to accomplish that, I’m willing to consider it. What I can’t abide are those who just forget about these Prenda type schemes or see outside investment as a way to enrich lawyers. But any discussion of outside investment needs to start and end with the issues that you identify.

http://www.facebook.com/jrushie Jordan Rushie

I am deeply disappointed by this article. You let people like Adrian Dayton, Susan Cartier, and Rachel Rodgers slide, while going after Prenda?

That is… surprising.

The lawyers at Prenda are actually quite competent. You can say a lot of stuff about Steele and Hansmeier, but not that they are bad lawyers.

Prenda, and Steele Hansmeier, litigated hundreds of cases in federal courts, many of which they won on. They blazed some new ground, and the law on joinder is split because of them. The ownership behind the corporations might be questionable, but at least they’re competent and have significant litigation experience.

I don’t think it’s fair of you to call Prenda “pretenda”. They have litigated numerous cases. Prenda has a created a significant amount of appellate case law.

You know who is pretend? Adrian Dayton. Rachel Rodgers. Stephen Fairley. Susan Cartier. Those who have never set foot in a courtroom but pretend to be in a position to advise lawyers.

Why would you condemn actual lawyers, while letting marketeers off the hook scott free? You don’t criticize children who play with toys and pass themselves off as lawyers, while condemning Prenda, who has at least set foot in a courtroom. They’ve blazed important appellate law.

And I’m not saying this out of any great love for Prenda. It’s just that they are real lawyers who were in the arena many times.

myshingle

Jordan – Wow – this is certainly a different perspective. Much as I hate being criticized, I always love an original perspective and I’m always willing to consider the possibility that I’m wrong. But here, I’m not – so let me respond to each of your points.

First, I don’t know much about Prenda’s lawyer’s substantive skills – nor did I investigate that angle for this post because that wasn’t really relevant to my post. Knowing that you handle Bittorrent cases and practice in this space, I was prepared to to defer to your opinion — but not before doing a little background research. Based on a few cursory Google Scholar and Google searches, frankly, I am at a loss to see what Prenda or its lawyers have contributed to the field of copyright law. I did not find any precedential cases in which Prenda lawyers participated – or even a blog or legal scholarship about legal issues related to copyright or illegal downloads. Even Prenda’s playbook of suing alleged violators en masse doesn’t seem that original to me but rather, copied the tactics of other “en masse” lawyers (such as this firm handling California consumer laws – http://articles.latimes.com/2003/feb/27/local/me-fraud27) or foreclosure mill lawyers who bring thousands of suits and play the odds that defendants will be cowed into settling or will simply default. If that’s what real lawyers do, it’s no wonder that our profession has an image problem.
To be clear, I don’t take issue with Prenda’s efforts to defend its clients’ copyrights. As a copyright holder myself, I’m not a fan of “scot free content.” But whether lawyers are protecting copyright or evicting people from their homes, their actions do affect others and they have an obligation to undertake some due diligence before papering the court system with robo-pleadings and computer-generated IP addresses.

In any event, as I said, the point of my post wasn’t to criticize Prenda’s lawyers’ substantive skills but rather, the way in which they structured their firm and pursued their cases. I called Prenda a “pretenda” not because I thought that its lawyers weren’t “real,” but rather, because it pretended to be a law firm when it was really a loose network of independent contractors and of counsel operating under one name. And there’s nothing inherently wrong with that kind of structure either – so long as the principals behind the entity are willing to stand accountable for their minions. I stand by my opinion that Prenda’s actions are reprehensible – it retained firms as of counsel, did not fully make them aware of the weaknesses in the case and then let them take the fall (and while it’s true that local counsel have responsibility to engage in their own due diligence, many are also inclined, quite reasonably in my view, to investigate less when a case comes from an attorney rather than a client).
It was Prenda’s business model that at was really at the heart of my post. In man ways, Prenda’s lean structure resembles some of the alternative business models that we are seeing today. Rather than the Cravath structure of old, where firms were bound by partnership and trained new associates (and don’t get me wrong, that model had loads of issues too including outrageous fees and client-subsidized associate training), lawyers are creating all kinds of networks and hubs and feeders to avoid overhead and become more competitive. So far, these networks have been applauded as a silver bullet to solve the failing law firm model. But is that always true? Yes, these networks reduce client costs and allow lawyers more flexibility. But are young lawyers, who were previously stuck with 80 hour workweeks better served by a system which hires them on a gig basis and leaves them hanging when trouble comes? Are we better off with a system where a group of lawyers can perpetuate a fraud on the courts – with the principals remaining blameless and then going on to do it all over again in another court? These are some of the issues that we have to consider as we adopt new business models – issues that few others are writing about – or if they are, they are doing it in an overly negative way rather than trying to figure out how we can keep the models that work while getting rid of the ones that don’t.

Which brings me to your third point about why I would choose to criticize real lawyers and not lawyers or former lawyers who focus on marketing and training – because I am not a bandwagon blogger. I would say that 80 percent of what I write at this blog deals with topics that others are not talking about or puts a spin on things that others haven’t. (As an aside, in the case where I’m a defendant, I was one of the first 3 or 4 bloggers to post about Rakofsky (all within a short period of each other) – I’d probably never have blogged about it at all if a dozen other people had already done so) The people you criticize me for not taking to task have already had more than their fair share of criticism online – and even if I agreed with all of it (which I don’t), I don’t fish in crowded waters. That said, I did write an extensive post disagreeing with a long-ago post of Rachel’s that ethics don’t matter and a few years back I criticized one of the SPU professors for pretending to be a man when she was a woman as well as a post that endorsed Groupon. But even though I may disagree with Rachel and Susan about various practices – like business models or the role that marketing should play in a law firm, it doesn’t make them unethical – which Prenda was. As for Adrian, as far as I know (which is not much at all), he works with large law firms which is way outside my blog’s focus and frankly, which ought to have the business acumen to take care of themselves when they hire vendors.

http://www.facebook.com/jrushie Jordan Rushie

Interesting reply.

Here is my take on it. The biggest problem porn producers have is theft of their content. They make a movie, and it’s available for free on the internet the next day. Why would anyone pay for what you can get for free on the internet?

Because bittorrent is so decentralized, you have pirates sharing in all 50 states at a time. Joe in Minnesota has part of the movie, Paul in Pennsylvania has part, and so does Mike in California. There is no centralized entity to go after, either, like there was in Napster. You have pirates all over the country, and relying on this to avoid any accountability.

Prenda’s model was built based on what their clients needed. Their option was either to hire full time staff members in all 50 states, or to create a network of local counsel, while Prenda directed the litigation.

I don’t think there is anything wrong with the model, per se. If they had to have full time counsel in every state, and supervise them, it would be so expensive that porn clients couldn’t have their day in court.

If Prenda did anything wrong (still a big if), which no one has even determined yet, it was for being both the client and the lawyer. It had nothing to do with their network of local attorneys with a large law firm mostly directing the litigation based on their expertise. To the extent Prenda was directing the litigation, it’s because they have been doing it for so long that they know the pitfalls better than everyone else. Keep in mind that Prenda or its affiliates have been litigating for many years before this came up. And they’re being questioned by a judge who called mass copyright lawsuits in general “essentially an extortion scheme.”

If there is one section of law where there is “federal common law” it’s bittorrent litigation. Almost all the authority comes from District Court.

In any case, when I did railroad defense, part of the problem is how national the issues were. There are only a few railroad defense law firms in the country, so it also involved having a law firm directing the litigation by using local counsel. It’s paramount to know the specific issues in railroad litigation.

It’s the same with Prenda and bittorrent litigation. There are only a few law firms that are competent to represent porn companies in intellectual property matters. Prenda is one of them. But due to the nature of piracy, they directed the litigation but had to use local counsel if the client had needs out of state. However, it’s more important to know the issues specific to bittorrent litigation than anything. Like it or not, Prenda is one of the few law firms that knows how to do it, and what the issues are.

I just think it’s very unfair to suggest they are not a “real” law firm. They’ve litigated a ton of cases successfully, and the model was built on the needs of the client.

SOPA_NOPA

They’ve never had a case go past discovery, much less won a judgement on the merits. They dismiss cases just because a John Doe hires a lawyer and decides to defend himself, because they have so little confidence in their own skills they won’t litigate a case all the way through. Now they are arguing that they are involved in a criminal investigation in Wright’s court room, while setting a new standard for a plaintiff pleading the fifth while litigating their own case.

Sorry but there is absolutely nothing competent about this operation, given that this entire mess is a bunch of lawyers trying to put together a next-generation lawyering scheme, you cannot honestly tease their various behaviors apart and conclude that they are actually great copyright lawyers (especially when not one of them has litigated a copyright case through to anything but a default judgement).

John Steele has an old website where he bragged about his extensive corporate law experience, and if that were so maybe there would not be so many questions, story changes, and fifth amendment invocations regarding the corporate structure of Prenda and their supposed clients.

And you really aren’t paying attention if you think the lawyer/client mixup is the only problem Jordan, because one of the biggest problems they have is the alleged identity theft of a guy, Alan Cooper, who at least had the decency to show up in court, answer questions, and deny he had signed the documents with his name on them, while everyone affiliated with Prenda took the fifth. There is also a problem with Peter and Paul Hansmeier having nearly identical signatures (Peter’s looks just like Paul’s but with the “aul” photoshopped out), meaning possible forgery on a sworn declaration filed in tens if not hundreds of cases nationwide. They were also called out for their investigative techniques (or lack thereof) and for willfully disobeying a court’s order to stay discovery.

Oh and what about John Steele, Paul Duffy, and Prenda law filing the baseless, vexations libel lawsuits against Alan Cooper and his attorney in order to try to bully him into not coming forward with his allegations of identity theft? You know, the ones where they don’t even bother to attribute ANY of the defamatory statements to either Cooper or his attorney Godfreid? Merely picked a bunch of random quotes off the Internet and accused Cooper and Godfreid of being part of a “community” and “conspiracy.” What about John Steele contacting Cooper when he was represented by counsel to threaten him with more lawsuits?

It sounds like you are way behind on Prenda shenanigans and haven’t even read the filings in the case pending before Wright’s court and therefore shouldn’t be making some of those assertions.

SOPA_NOPA

Again can you please define “won” or give case #’s that Prenda has won. As far as I know they have only received a couple of default judgements.

http://www.facebook.com/jrushie Jordan Rushie

I’m very up on the cases. This is way too long for me to respond to.

The context of this blog is very different than say, fightcopyrighttrolls. Much of what we discuss here is the practice of law in general, and as it pertains to small law firms.

My post isn’t about Prenda, really, (although I disagree that they are not competent – they know bittorrent better than many other law firms), it’s about smaller law firms using a model that employs local counsel around the country, to meet the needs of a client.

Did Prenda meet the needs of its clients? In many cases, yeah, it did.

All the other stuff isn’t relevant to this particular discussion, or Carolyn’s blog in generally really.

http://www.facebook.com/jrushie Jordan Rushie

Any time they collected money that went back into their clients’ pockets, it was a win.

SOPA_NOPA

So competent they just got referred to every bar they are members of or have cases pending before, the US Attorney for the Central District of California, and the Criminal Investigation Division of the Internal Revenue Service. The $81K sanction due in 14 days is just icing on the cake.

I thought you made a dubious judgment call defending Prenda’s “competence” after their shenanigans; I was right.